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Rental markets tighten and rents surge

Michael Yardney and Dr Andrew Wilson discuss Australia's rental market.

Video transcript

- Our property markets have had a lot to contend with lately. And this is showing in a downward trend in property price, growth, and auction clearance rates. On the other hand, vacancy rates are falling and rents are rising significantly around Australia's capital cities. That's what I want to discuss today in this week's Property Insider video for Yahoo Finance with Doctor Andrew Wilson, chief economist of "My Housing Market."


- Hello, Michael. It's been an exciting week, hasn't it? There's lots of data that's come out. And of course, we had the shock decision by the Reserve Bank-- maybe not so much of a shock-- to increase interest rates for the first time in over 11 years. And they didn't just tickle them up by their preferred increment of 0.25%.

- Well, the Reserve Bank's hoping to keep inflation in its band-- preferred band of 2% to 3%. But it seemed clear from the Reserve Bank statement last week that the significant inflationary shock we got came as a surprise to them, Andrew.

- Yes, Michael. And I guess we have had the hangover after the party, if I could call it that. The party, of course, was the stimulus that all economies promoted as-- to try to get us out of COVID. And we were in certainly uncharted waters, there. And the cost of that has been the constraints to supply to keep up with all that demand. And that's pushed prices up now.

But of course, the question is, will wages rise to-- in response? It's all theoretical, now. It's all speculative. And the Reserve Bank admits they don't really know what's going to happen, going forward. They hope that wages will rise to offset the costs of inflation, but they don't want wages to rise to the point where they're fueling inflation.

And that's the conundrum, Michael. If they're cheering on higher wages, maybe they're cheering on the capacity to keep pushing up prices. And once we move past what's happening with oil and house costs, then it is the fact that higher wages will be fueling inflation, generally.

Rents are rising in most capitals at more than 10% per annum. Vacancy rates are near low levels. That's a real drive for more investors. Investor numbers are rising to take advantage of those solid returns in the market.

- You talked about the rental markets. And they've really tightened over April. Your latest "My Housing Market" rental report showed that we're running into a rental crisis.

- Well, I think we're well and truly in that mode now, Michael. It's just reinforced month after month. The two market sectors that were-- perhaps had supply ahead of demand were those inner city units in Sydney and CBD units in Melbourne. They're now tightening up quite significantly, Michael. Vacancy rates are falling now, in those particular areas in Melbourne and Sydney for units. Perhaps, the choices for those that are being squeezed out of other sections of Melbourne and Sydney are now pushing towards those unit markets in the city.

And open borders-- we're going to see more international students, which will increase demand for rentals, typically, in those areas. And rents are starting to rise again in Sydney and Melbourne inner city areas for units. So they were the only bright spots for tenants. But everywhere else is doom and gloom, Michael-- rents rising, vacancies falling. And there's really no prospect of this changing any time soon.

I was amused that the Reserve Bank in its quarterly report mentioned that they believed that a driver of higher rents was higher incomes. I don't know how they substantiate that, because as we know, from the latest incomes data, it's still as flat as a tack, incomes growth. And we've had rents really increasing sharply for a year or more, now.

So not good news for tenants, Michael, but certainly a lot of interest there from landlords. And maybe going forward, Michael, as a result of this, we may see fewer and fewer 12 month leases, with landlords opting for shorter term leases so they can take advantage of what is very strong demand at the moment.

- And as you say, very little new supply coming on the market. That's in part because there's fewer new apartments being built. But the other thing is a lot of investors dropped out of the market over the last couple of years. That seems to be anecdotal evidence, but too many estate agents and others are saying their investors have sold up. And with those properties have been sold over the last year or two, it's in general, being owner occupiers buying them. So less rental stock, more people needing to rent, harder to get to become a first home buyer, so rents on the way up.

So lots to keep an eye on, on our property markets, lots of moving parts. Few people spinning plates hoping, they don't fall over. So I look forward to catching up with you again next week to get your commentary on what's happening in the markets, Andrew.

- Yeah, thanks a lot, Michael.


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